Economic Development

Manufacturing Up in Region, Outpaces U.S. Productivity

YOUNGSTOWN, Ohio – After an economic slump of more than a decade, northeastern Ohio manufacturing is rebounding from the Great Recession. And experts are optimistic for that trend to continue.

A report released today by Team Northeast Ohio, better known as Team NEO, in partnership with the Manufacturing Advocacy and Growth Network, or Magnet, shows that the region has nearly matched pre-recession output levels and is outpacing the nation in productivity gains. The report features results from Magnet’s 2018 Northeast Ohio Regional Manufacturing Survey.

“We found manufacturing executives are overwhelmingly optimistic and have every reason to be, as confirmed by Team NEO’s research,” said Ethan Karp, Magnet president and CEO. “The survey reveals that regional manufacturing companies saw their workforces and revenues grow in 2017, and expect that growth to continue in 2018.”

During a phone conference, Team NEO’s vice president of strategy and research, Jacob Duritsky, said output is nearly back to its pre-recession level, and is outpacing pre-recession levels in seven sectors: computer and electronic products, primary metals, nonmetallic mineral products, leather and allied products, beverage and tobacco products, and food as well as petroleum and coal products.

Output – northeastern Ohio’s share of national gross domestic product – plunged 25% from 2007 to 2009, but has risen to about a half percent below pre-recession levels, Duritsky said. U.S. output as a whole declined only about 10% and is now just above where it was pre-recession.

“We got hit two-and-a-half times harder than the U.S. as a whole and had a much bigger hole to climb out of,” he said.

In 2010, productivity exceeded where it was pre-recession and has continued to grow, he said. Regional manufacturing productivity is at 17% and currently outpaces the U.S. at 12%. The high-technology sectors are driving growth, and the firm expects the computer and electronic products sector to increase by 41%, compared to 33% nationally. Demand in the aerospace industry is expected to drive growth of the transportation equipment sector by a rate of 20% in northeastern Ohio.

“As this research demonstrates, northeast Ohio’s productivity is well above the national average, providing businesses financial and speed advantages that make our region highly attractive for manufacturers and other industries,” said William Koehler, CEO of Team NEO. “Our workforce, supply chain, lower costs and culture of innovation mean that manufacturing will continue to be a driver of our economy far into the future.”

Currently, manufacturing is a $43 billion industry and makes up the largest sector of output in the region, and Magnet expects the economy to improve to $50 billion over the next five years.

Investments, such as automationand new processes, continue to help the manufacturing sector to be “productive and globally competitive,” Duritsky said.

Job loss from 2007 to 2017 was an “equal opportunity event,” with losses across most sectors totaling about 45,000, he said. The drop in employment in northeastern Ohio lasted until 2010, costing the region about 20% of its manufacturing jobs. Currently, the region is about “15% below where we were when we entered the recession,” at about 265,000.

 The primary metals and fabricated metals industries were two of the hardest hit. Customers of those industries “took a huge hit initially as the global economy kind of crashed,” he said.

“It was an exacerbation of low demand and industries that have been automating for quite a while now,” Duritsky said.

Manufacturing in the Mahoning Valley is experiencing the same type of activity regarding workforce and employment, said Sarah Boyarko, senior vice president of economic development for the Youngstown/Warren Regional Chamber.

Post-recession employment is increasing slowly, “moving more toward what we once were in 2007,” Boyarko said. She cites plastics/rubber manufacturing and miscellaneous manufacturing, such as machine shops, as two of the biggest growth areas, with Dinesol Plastics Inc., Niles, and Venture Plastics Inc., Newton Falls, reporting growth.

“We’re seeing some of the same trends, just maybe on a smaller market level in comparison to a larger metro,” Boyarko said.

Local manufacturing also felt the sting of the primary and fabricated metals industries with the closing of Warren Steel Holdings in 2016 and R.G. Steel Corp. in 2012.

In an effort to assist local manufacturing, chamber staff is managing $2.1 billion of pending investment that could create nearly 1,800 new positions, including some $900 million for the second phase of the Trumbull Energy Center, Boyarko said.

“All of our entire pipeline right now is industrial in nature,” she said.

The biggest challenge in workforce development is that job seekers don’t know where to find job opportunities, she said. It’s one of the reasons why the chamber created the JobsNow Workforce Initiative, which was designed to connect qualified workers to employers.

Some in-demand jobs among machine shops and manufacturers in Mahoning, Trumbull and Columbiana counties include maintenance and repair workers, production workers and mechanical engineers, the chamber reports. Other industries include:

Trades and Trucking: Truck drivers, electricians, bus and truck mechanics, diesel engine specialists, janitors, light truck or delivery services and automotive specialty technicians.

Health Care: Nurses and nursing-related roles, home health aides, pharmacy technicians, medical assistants, and mental health and substance abuse social workers.

Retail: Retail workers, demonstrators and product promoters.

Banking, Business and Education: Tellers, office clerks, security guards, teachers and teaching assistants.

Regionally, 58% of manufacturers with fewer than 500 employees cited attracting new skilled workers as the No. 1 issue hampering their growth, said Matt Fieldman, Magnet’s vice president of internal affairs. It vastly outweighs other issues such as government regulations, health care, retirement benefits and foreign competition.

“We need to address this issue as a community,” Fieldman said. “So we can help these companies grow both their revenue and their jobs, and compete globally.”

In 2018, 62% of manufacturers expect to grow their workforce by 5% or more and only 3% expect workforce shrinkage. To address workforce challenges, manufacturers are working to transfer knowledge to younger workers (65%), planning to increase wages (58%), offering tuition reimbursement (49%), collaborating with higher-ed institutions for workforce training and recruitment (40%), and engaging new populations, such as ex-offenders, high school students and refugees.

To help employers attract and retain more people, Magnet is implementing fast-track training programs for adults and increasing its high school training programs to seven northeastern Ohio high schools from five 

“The need to grow your own workers, to retain them once you get them in the door, is really pressing,” he said. 

Cybersecurity is a growing concern for most manufacturers, he said. While 64% of manufacturers said they have taken steps to protect their businesses, only 22% have undergone formal assessments from third-party providers that provide more advanced protection, such as testing firewalls, establishing best practices like updating passwords and training staff on what types of emails to open.

Cyber attacks among manufacturers have been “few and far between” in northeastern Ohio, “but they’re enough to hopefully spur manufacturing companies to action,” Fieldman said.

Companies that favor innovation and launching new, unique products, were “far more likely to be growing,” he said. It’s important, because it shows that companies that are willing to take risks and make the investments necessary to bring new products to market, they are seeing the returns on those investments, he said. In the last two years, 69% of small companies in the region have launched a new product or service, up 15% over 2016.

“Not all regions are growing at the same speed,” he said. “While basically 60% of companies expect to grow, those companies do tend to be clustered around the more urban counties,” including Cuyahoga, Stark and Summit.

Of the more rural counties, which include Mahoning and Trumbull, only about 40% of companies expect to grow in 2018, he said.

“There’s certainly less optimism in rural counties, and we need to figure out why that is,” he added.

Local companies have the internal capital to make ongoing investments, Boyarko said. But instead of large investments, manufacturers prefer gradual investments over a longer period of time “that are more realistic in approach.”

More manufacturers are investing in automation, she said. And while that may be part of the reason for slower growth in employment, automation “makes that company that much quicker to market. You have a higher level of training … so it’s creating a higher level employment opportunity for higher pay,” she said.

“Looking at that broadly, technology is great,” she said. “It does create a stronger employment base, it creates higher paying jobs” and more success for that company that will allow them to grow in other areas. 

Companies are employing other cost-saving measures through industry partnerships, such as shared staff, shared services and sharing excess work “instead of turning down work that they might be getting because they can’t meet the capacity,” she said.

Published by The Business Journal, Youngstown, Ohio.